Apple: Beloved to Hated?

07/15/2013 8:00 am EST


Without rehashing the ebbs and flows of the shares, we would simply note that Apple is cheap, the brand is strong, and the cash flow impressive, suggests Geoffrey Seiler of

Few stocks have gone from beloved and beguiling to unloved and almost hated. The change in sentiment came sometime last fall, not long after the stock topped $700 and the most-bullish analysts were raising their targets to as much as $1,000. Oh, how things have changed.

The stock recently caught an upgrade at Raymond James. "We are upgrading our rating on shares of Apple (AAPL) from outperform to strong buy based on valuation and our belief that near-term financial trends will stabilize and then improve following the June quarter," analyst Tavis McCourt wrote. McCourt maintained his $600 price target.

McCourt wrote that he expects Apple to benefit as cars, TVs, appliances, and other products become more computerized. He referred to it as "Phase 2" of mobile computing, with phones and tablets representing the first phase and mobile applications becoming embedded in products not normally associated with “computing” in the next phase.

He noted retention rates on the iOS platform are around 90%, saying it was “the one data point I hang my hat on. That's really unique in the history of consumer products. And certainly never in the history of consumer electronics have we seen consumer retention rates that high.”

There has been no shortage of analyst actions and commentaries on Apple, but McCourt's thesis that the iOS infrastructure helps bind users to the Apple brand hews closely to our own view of the name.

Whether the future involves iOS-based mobile applications in toasters, cars, and refrigerators remains to be seen, but it is an interesting notion.

We do think it is true that iTunes and the App Store help to encourage people to upgrade to newer Apple products as they emerge rather than switch to competing platforms.

Apple is going to have to come up with a new popular device that shows it can still innovate, whether that is a true iTV, wearable tech like an iWatch, or something else in order for the stock to gain momentum again.

Apple, meanwhile, continues to generate tremendous cash flow and the stock is inexpensive.

It remains a formidable company that we believe still has some new products up its sleeve. It is likely to take a compelling new one to really get the stock moving again.

Somewhere around the $400 level appears to be the floor for the stock. We continue to rate Apple a “Strong Buy” for patient investors. Our target is $600.

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